One of your biggest annual expenses is your mortgage. We’re all looking for easy ways to save money on our mortgage and one easy way to save in the long term is pay a little extra in the short term.
For someone with a $300,000 mortgage with a 3.25% interest rate and 30-year term, you pay $1,306 in monthly principal and interest.
👉🏻 Pay $100 per month extra you can save $22,000 over the life of the loan and pay your loan of three years faster.
👉🏻 Pay $200 more, you can save $38,000 and pay it off six years faster.
Another way to shorten the length of your loan and save long term is to make bi-weekly payments. Many people get paid every two weeks and if you pay half your mortgage payment on each payday, you end up paying an extra full month on your mortgage each year.
👉🏻 On a 30-year, $300,00 mortgage at 3.25% interest, you would save more than $24,000 in
interest and pay off your loan about four years quicker with bi-weekly payments.
It’s important to alert your mortgage provider of your plans to pay bi-weekly, however, so the payments are recorded correctly and don’t ding your credit report for being late.
15 for 30
A 30-year mortgage vs. 15-year mortgage on the surface seems like you’d pay a lot more over time on your mortgage. And in most cases, you will. But you still could have a 30-year mortgage and make payments like you have a 15-year mortgage. Doing this gives you the flexibility of having the lower payment to fall back on if your finances change. Sometimes the flexibility is as important as forced savings.
With most mortgages, anything you pay extra goes to the principal and every little bit adds up and has an impact.
Like most financial decisions, it’s important to consider your overall budget and financial goals. Reach out to me to talk about all your mortgage needs and what may be best for you based on your situation. (firstname.lastname@example.org)